The Last Contract
In the spring of 1986, I talked with Andrew in his bungalow at the Mandarin Hotel near the Huli District of Xiamen’s Special Economic Zone. It’s a place Andrew characterized as having been a five-start hotel before the Hong Kong management pulled out, but now in decided decline. The living room was bare except for the furniture and packing crates. Andrew was a good-looking Briton in his late thirties, an executive who gave me an immediate impression of competence, assertiveness and general goodwill toward others. He spoke in a dry, clipped, very articulate manner.
I work for a multinational company with offices in just about every major city in the world. We do a lot of trading, and we also have a construction company, the one that I’m involved in.
We had a joint venture agreement with a company here. Everything was signed and agreed. We were to provide the design for two hotels—using an architect from Hong Kong, using the best possible management techniques to make the hotel the right shape inside. We produced three schemes for the Chinese to look at, had models made up, brought the models up in boxes, and the Chinese wouldn’t even look at them. Before they looked at anything, they wanted to have another agreement that they could have a local design institute involved with the Hong Kong architect doing the design.
So we said, “Well, in principle we don’t object if the local design institute here helps us with the design for the structure, because they know the regulations here and any particular quirks of the administration bureaucracy. They could deal with that.”
“No, we want the design institute involved with the interior design too.”
“We can’t agree because we will be involving specialists from the States in interior design.”
“Oh. Well, we can’t agree to that.”
Although we still effectively have a joint-venture, the project was never started. The site is in a good spot near the lake on the new road that runs out to the airport. The ground is still there, but we’re not using it.
We were involved with the other hotel project up until last September. We were not only going to build the hotel for them, we were going to invest the money and run the hotel with our own management. From the profits of the venture we’d repay the loan money that we’d brought in. But before we put any money in, we said, “Look, we must have a Bank of China guarantee that if something goes wrong we don’t lose our money.” We could invest everything and then China could say, “We’re closing the doors again.” It’s only a small risk, but when you’re talking of 25 million U.S. dollars, it’s a lot of money to end up not having.
So, we waited to hear from them that this bank guarantee would go through. We couldn’t send the money up from Hong Kong until we had the guarantee. They couldn’t get the guarantee, so they put a lot of pressure on us to send the money anyway. We said, “Sorry, we can’t.”
That left them with a problem. They had sufficient money from their part of the finance for the joint-venture to complete the structure and the brickwork. It’s standing over there now. It will be a monument to dust-collecting. But they carried on. They couldn’t find another company to go in with them, so in November they came back to us again and said, “Look, is there some other way we can come to an agreement to get this hotel built?”
“Well, yes, of course we shall look at it, but we’ll have to rethink the time schedule and so on.”
So we sent a team here of people here from Hong Kong and from England, we checked over the hotel they’d built. The standard was not particularly good. Since our management was pulled off in September, the rest of the work was fairly bad, and it would have cost a lot of money to put it right. So we did all of our sums and worked out how long it would take us to recover the cost of the loans. We found that over seven to nine years, the stipulated period for the loans, we couldn’t recover the investment. We told them, “Look, it’s not possible to do this.” There it stayed for a while.
Now to catch up on another bit—it all comes together in the end—with the same company we were negotiating another project to build a furniture factory in Xiamen. The potential was unbelievable. It would have been a terrific project for everybody concerned. For China, because it would have produced a lot of hard currency for them—and for us—and given them technology in the form of the factory that we were going to provide. It would have meant a good return for my company as an investment, and also we would have taken the product and sold it worldwide. Hardwood furniture. China has great reserves of good-quality timber.
So we started negotiating that one, and after a period of time—I’m talking about a long time—we had a joint-venture contract, we had all the feasibility studies prepared, the reports, we had everything set up ready to go. We sat in this room here, and we signed every page of the contract, initialed it as agreed. We couldn’t sign the final page until the whole thing had been put to the Xiamen government.
In November 1985, and we got the approval of the Xiamen government. So I contacted the head office in Hong Kong, and I said, “Could we arrange for the managing director, the commercial director from England and the director of our associated company in Denmark to come here to sign?”
We spent quite a bit of money bringing these people here for a meeting, and then the Chinese party would not sign. They wanted some changes to the contract. Okay. We sat here for three days, and we changed the contract.
“We’d like some more changes.”
We made some more changes, and they came back again. “We want some more changes.”
Now, they were tying up the two projects together, the hotel and the furniture factory. They wanted the two ventures to be channeled together so that the profits from the furniture factory would offset the loss on the hotel.
We said, “No, we don’t particularly want to do that. We can talk about that further, but let us get the furniture factory going because even after the first year, we will be producing some money. We will be repaying the loans, and we will be taking profits.”
“No, we’d still like them to be run together, and we’d like you to look again at the hotel.”
This was now the end of February, beginning of March. We brought yet another team from Hong Kong and from England, and we looked at the hotel again. We did our revised cost, and we said, “There may be some way we can do it, but we must have all the figures you’ve prepared, and we must check with the architect in Hong Kong.”
They gave us their budget of nine million U.S. dollars to finish the hotel. We thought it was not really the right sort of figure, and we checked it. Our figure was about 22 million dollars to get something reasonable. We’re not talking about a hotel to the standard of the Mandarin. It would be just one step lower, aimed at the businessman. With your hotel room you could rent an office with computer links to bring in information from outside.
We said, “Even at two, three-star standard we need 22 million.”
“Ah. Well, that’s too much. That’s too expensive.”
“But that’s the only way we can do it.”
So they looked at the furniture factory again, and they said, “We want some more changes in the contract.”
“Look. We cannot go ahead with the hotel because we believe that it’s not a good commercial proposition. We feel that over our association of eighteen months you haven’t told us what’s going on. We are supposed to be your partners, and you’ve just gone your own way without informing us of anything you’ve done. Now you’ve got a problem, you’re telling us. We don’t want the hotel. Finished. As for the furniture factory, this is the last contract. Look at it, if you want the furniture factory, got ahead, sign it and return it to Hong Kong by April 15. If you don’t do that, we will consider that you don’t want the contract.” They sent the contract back to Hong Kong with more amendments.
So that was the end of the furniture factory project and the hotel, which means that we knew two weeks ago that we would be going back to Hong Kong. It’s been very difficult from this side. When you think of the waste of time and effort—for over one year talking about the contract, which had been agreed, a contract that would have made millions for China. I was very disappointed about the furniture factory not going ahead because it meant that we couldn’t stay here. Secondly, it would have been an excellent project. They have the advantage of having a labor cost that can beat anybody else in the world. They also have the resources here to do it. I feel sorry that China has missed out on a good opportunity. Obviously, we were doing it because we could make some money from it. But also, our partners here would have made an equal amount of money, all in hard currency, which China does need.
Then there are other things. For example, I’m a builder. I understand building. When you start putting a building together, the bits underneath must go in first. They don’t do it this way. They put the building in, and they don’t think that they’ve got to have sewage, water, gas, electricity, telephones all coming into the building somewhere. This is why I think their design institutions here are a bit behind. It would be good if you could send people out to get some training.
I noticed a piece of ground just down the road near those new factories. That piece of ground has been dug up and opened four times—a length all they way down the road, say, half a kilometer. They dug and put the sewer pipe in. Closed it up. They dug and put the water pipe in. Closed it up. They dug and put some cable ducts in for the electrical system and filled it up. They found out the sewage system didn’t work, so they dug and took all the pipes out because they were leaking.
As for the finish of the buildings inside, if they paint the wall, they paint the wall, but if the paint goes on the floor as well, it doesn’t matter. They’ve painted the wall, they’ve completed their task. If they’ve painted the windows, it doesn’t matter if the paint goes on the glass, They’ve painted all around it, so they’re done. The final, little things that make a building a building, they don’t do them.
The traditional buildings here are good. All the houses—excellent. The granite work is unbelievable, all cut by little men sitting there for hours banging bits of steel into the granite and splitting it up. The granite houses are wonderful places. But their “modern” work—they call concrete “modern”—is very poor.
When I was involved in the hotel there were certain things that were wrong on the construction. Wrong by drawing, wrong by common sense, and wrong by any building regulation you can think of. So I said to the people, “This is not right. We can’t do it this way. We must change it.”
“Oh no, in China this is acceptable.”
“Well, it doesn’t matter. I can’t accept it because I don’t think it’s good. It’s bad workmanship. We must change it.”
“Well, no, it’s okay. We do it this way. It’s fine.”
“Look, I’ve been brought here as a Foreign Expert to try and help you to try and impart some of the higher technology that we have.”
“Well, yes, that’s right. Yes, yes.”
“But when I tell you something is wrong you won’t listen to me.”
“Oh, but we do it this way here.”
“Then why am I here?”
“Because you’re the expert.”
They want you here because they think it’s a good idea, but when you’re here they won’t listen to you. We had lots of arguments, and in a typical businesslike fashion I was banging the table at them.
Once we were putting in the foundations, which are a pretty important part of a building. The outside foundation from one side of the building to the other was six inches out of position, and some of the beams were the wrong size.
“No,” I said, “this is not good. I’ve checked it. We must put it right. We must have the ground beams the right size—not this big, but the right size.”
“No, we always make them smaller.”
“Because when we put the concrete into the form work, the form work gets bigger.”
“No, you fit to the right size.”
“Look, I don’t want you to concrete this until you’ve changed it all, it’s all right, and I’ve checked it on Monday morning. You’ve got the weekend to change it.”
I went there on Saturday morning, and there were people working. Okay. I went back there on Monday morning, everything has been concreted. All done.
“We did it yesterday.”
“But I told you not to do it until you checked with me.”
“Yes, but we did everything like you said.”
“I don’t believe that. Let’s go and check everything.”
So we went and checked. It was still six inches out of position and the beams were the wrong size wood.
“I’m very upset about this. I will call in the local building inspection agency.”
They came down to the site, they did their check, and the report said we had a 73% pass.
“What does this mean?”
“Look, 73% of the beams are okay.”
“Well, what about the other 27% of the ground beams?”
“They’re okay. They’re all right now,”
“But we haven’t changed them.”
“Oh no, they’re all right, because everything’s passed—73% passed, so everything’s okay.”
“A building is as strong as its weakest spot. We’ve got 27% of the foundations that aren’t good enough. What are we going to do?”
Because there’s this piece of paper that says it’s 73%, which is more than 60%, nobody has any blame now. I couldn’t really work that one out. I mean, they’re not faulty foundations. I’m not saying that the building will fall down. Design is something that’s hit-and-miss anyway. You think of a number, double it, and make sure by doubling it again. That’s more or less design. It’s a bit more scientific than that, but that’s the principle. Nobody really knows how strong material is—steel, concrete—so it will be all right, I’m sure. If it were in England I would have had everything take out and had it put back again. But here! “Oh, you can’t do that! That’s too much money!”
On the other hand, they put in a lot of unnecessary money because a Chinese soothsayer designated Xiamen as an earthquake zone, even though the fault line is further north, north of Taiwan. He said there would be three earthquakes in China—one in Tanshan one in Tianjin, and one in Xiamen. He got the first two right. So now everything has to be designed to the equivalent of the California Code, which sets standards for structures in earthquake conditions. They’ve got this expensive, massive design of heavy concrete to insure that the building stays there in the event of an earthquake. There’s never been an earthquake here, and I don’t suppose there ever will be.
As far as we’re concerned, the Chinese want you here, but they don’t want you. It’s a strange feeling and one that comes again and again. There’re only three types of people in the world for them, aren’t there? Chinese, Overseas Chinese, and foreigners. Nobody else exists. It’s a strange attitude, but I think it goes way back in their history when China is the center of the earth. I don’t think they’re doing themselves any favors. If they listened to us, there would be more encouragement for people to come here.